Gladiator Stocks. ICICI Securities Retail Equity Research MOMENTUM PICK. Open Recommendations. Stock on the Move. Momentum Picks

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1 Gladiator Stocks New recommendations Time Frame: 6 Months Date Scrip I-Direct Code Buying Range Target Stoploss Upside (%) 3-Apr-18 Indian Hotels INDHOT Apr-18 EIH Ltd EIHLTD Open recommendations Time Frame: 6 Months Date Scrip Avg Rec Price Target Stoploss CMP Return till date (%) 9-Jan-18 Reliance Industries Jan-18 VST Industries , Feb-18 Merck , All the recommendations are in Cash segment Research Analysts Dharmesh Shah dharmesh.shah@icicisecurities.com Nitin Kunte, CMT nitin.kunte@icicisecurities.com April 4, 2018 Ninad Tamhanekar, CMT ninad.tamhanekar@icicisecurities.com Open Recommendations Stock on the Move Scrip Mahindra CIE Scrip Momentum Picks KEC International Ipca Labs Godrej properties Action Buy Duration: 3 Months Click here to know more Action Buy Buy Buy Duration: 1 month Click here to know more Pabitro Mukherjee pabitro.mukherjee@icicisecurities.com Vinayak Parmar vinayak.parmar@icicisecurities.com

2 Hotels Thematic: Time to check in GLADIATOR STOCKS During the past three years, the hotel industry has witnessed a visible demand improvement in pan-india occupancy levels The robust growth in foreign tourist arrivals, limited new room additions along with an uptick in domestic demand would be key structural positive growth drivers for the hotel sector in the long run. The October- March period is considered to be a strong season for the sector that accounts for ~60-65% of overall annual sales. The rise in occupancy levels supported by a healthy pick-up in demand (domestic + international) is expected to lead to a rise in room rates (ARRs) and robust expansion in margins of all established large hotel players in India, going forward, as 60% of total operating costs are fixed in nature On Technical charts, the stock prices have seen a decent correction after a strong up move in CY17 thereby working out the excesses built in previous rally. The signs of buying demand at key support levels makes us believe that the Hotel stocks are once again ready to resume next up leg and therefore offers favourable risk-reward set up Source: Bloomberg, ICICIdirect.com Research April 4, 2018 ICICI Securities Ltd. Retail Equity Research 2

3 % Change GLADIATOR STOCKS Indian Hotels (INDHOT) Double bottom at key support Technical Outlook Indian Hotels owns leading luxury hospitality brand Taj, has a global presence and is part of the Tata Group The share price has been resilient in the recent correction as it traced out a consistent buying support near key support of 125, which culminated in a potential double bottom formation. With investor sights on earnings visibility, selective buying is favouring hotel stocks. Indian Hotels stands out, especially, on relative strength rating. We believe the technical set up favours a fresh entry in the stock ahead of the next up move The share price surpassed its 2008 peak to register a fresh lifetime high of 161 in January A subsequent correction from lifetime highs got anchored at the key support of 125 as it is the confluence of the following technical parameters: a) breakout level above July-August 2016 and May 2017 peaks around range b) 61.8% retracement of the previous up move ( ) Double bottom formation at 125 during February and March 2018 makes it a key support, going forward Time wise, the stock has already taken 10 weeks to retrace just 61.8% of the previous sixteen weeks up move ( 100 to 161). Shallow price wise correction and elongated time wise consolidation highlights the robust price structure Among oscillators, the weekly 14 week s RSI is sustaining above the bull market support reading of 40. It has recently rebounded taking support at a trend line of its own joining its previous swing lows, thus, corroborating the positive bias Considering the robust price structure and above-mentioned technical observations, we expect the stock to resume its uptrend and head towards 169 in the medium term as it is the 123.6% external retracement of the recent decline ( ) at 169 levels Weekly Bar Chart Weekly RSI is rebounding from a trendline support of its own thus validates bullish bias in the stock 123.6% external 169 Double % retracement - Previous breakout area Strategy Stock Data Price performance last five years Buy Buying range Target 166 Stoploss 124 Potential upside 21% Time Frame 6 Months Recommended on i-click to gain at 14:31 hrs on April 03, 2018 Market Capitalisation ( Cr.) Face Value ( ) 1 52 Week High / Low 161/101 50/200 day EMA 136/121 3m Avg volume 334lacs MF Holding(%) FII Holding(%) Year Source: Bloomberg, ICICIdirect.com Research April 4, 2018 ICICI Securities Ltd. Retail Equity Research 3

4 Indian Hotels (INDHOT): Fundamental View Indian Hotel (IHCL) is one of the largest hotel players in India with a total room portfolio of ~17,000 rooms. The company has added nearly 3400 rooms over the last five years at 4.6% CAGR during the same period. The company has a presence in India and international markets with international market accounting for 40% of total consolidated revenues. Domestic hotel segment key growth driver The domestic hotel segment, which accounts for 60% of total revenues, has been witnessing some green shoots mainly led by a decline in room supply and increase in demand. This is further validated by the fact that that demand growth (5.6% YoY) has outpaced supply growth (3.2% YoY) in the domestic market during 9MFY18. Overall occupancy has also improved 2.3% YoY to 64% while the average room rate (ARR) improved 1.7% YoY in 9MFY18. We expect occupancy levels to improve further due to a rise in spending by domestic travellers. In addition, with improved tourism measures by the government, we expect the sector to witness a better growth trajectory and healthy pricing in the next three to four years. Divestment or turnaround in international subsidiary key trigger On the other hand, the international segment continues to remain a dragger with low single digit EBITDA margin (5-6%) and negative RoCE. However, in Q3FY18, the company s international subsidiaries also witnessed a turnaround leading to a net profit of ~ 15 crore vs. 88 lakh in Q3FY17. We believe this was mainly due to a divestment of the loss making Taj Boston and some cost rationalisation. We believe the turnaround of subsidiaries in the US and UK remains a key attribute to improve the overall performance of the company. Sale of non-core assets, operational turnaround strategy bodes well The recent right issue of 1,500 crore has enabled the company to reduce debt by ~ 1,200 crore thereby lowering debt/equity to 0.5x from 1.3x in FY17. Further, divestment of loss making international subsidiaries and sale of non-core assets (like ~100 residential apartment, ITDC shares and 44 acres of Land) will remain a key trigger for long term. Further, with the upbeat domestic environment and turnaround in the international segment, the company aims to improve its EBITDA margins to 25% by FY22E (from 17% in FY17). It plans to achieve the same through revenue optimisation (by 3-4%) and cost minimisation (3-5% through rationalisation of payroll, fuel and corporate overheads). Valuation & Outlook Q3FY18 saw healthy revenue growth mainly led by the better performance of the domestic segment. Going forward, we expect this segment to continue to gain traction led by higher occupancy, limited capacity addition and rise in spending by domestic travellers. Also, the company plans to add eight new hotels in India (having a total room of 704) through management contracts that will further boost the topline. Further, divestment or turnaround of loss making international subsidiaries and reduction in debt remain key positive triggers for the long term. The stock is trading at attractive valuation of ~ 2.2 crore/adjusted room leaving headroom for more appreciation. Stock Data Particular Amount Market Cap crore Debt (FY18E) 1965 crore Cash (FY18E) 190 crore EV crore Equity capital crore Face value 1 Key metrics FY16 FY17 FY18E FY19E PE (x) NA NA EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Financial Highlights FY16 FY17 FY18E FY19E Net Sales EBITDA Net Profit* EPS Source: Bloomberg, ICICI Direct.com Research April 4, 2018 ICICI Securities Ltd. Retail Equity Research 4

5 % Change GLADIATOR STOCKS EIH Ltd. (EIHLIM) Base formation augurs well for next leg of up move Technical Outlook EIH Ltd, under the aegis of The Oberoi Group, operates hotels and cruisers in five countries under the luxury 'Oberoi' and five-star 'Trident' brands. Oberoi Hotels & Resorts is synonymous the world over with providing the right blend of service, luxury and quiet efficiency The share price of EIH has been forming a higher peak higher trough on the long term chart. In January 2018, the stock recorded a breakout from upward sloping resistance trend line backed by heavy volumes and recorded an all-time high of 232. Since then, the stock has undergone a secondary phase of correction. Currently, it has approached its key value area of 155 and formed a higher high after 10 weeks correction, assisting the weekly stochastic oscillator to work off the overbought conditions. Thus, we believe the stock has undergone a healthy corrective phase paving the way for the next leg of the up move towards 192 Over the past 10 weeks, the stock has retraced 88% of the earlier three week s sharp up move ( ). A shallow price correction with elongated time wise consolidation highlights the strong price structure. We believe the recent throwback has approached its maturity and is likely to resume its up trend as it is the confluence of: a) The stock has been sustaining well above the gap area of on January 8, 2018 b) Also the 52 week s EMA is placed around 150 Among momentum oscillators, the weekly stochastic oscillator witnessed a bullish crossover, indicating acceleration of momentum The overall price structure makes us believe the stock has confirmed the three year long consolidation breakout by retesting it and is now well positioned to accelerate the momentum, thereby providing opportunity to create fresh long position in the range of from a medium-term perspective for target of 192 being 50% retracement level of last leg of decline ( ) Source: Bloomberg, ICICI Direct.com Research Weekly Bar Chart The stock has re-tested the breakout of three years long consolidation, auguring well for next leg of up move April 4, 2018 ICICI Securities Ltd. Retail Equity Research Week s EMA Bullish crossover of Stochastic oscillator and strong volume activity, indicates acceleration of momentum 156 Strategy Stock Data Buy Buying range Target 194 Stoploss 145 Potential upside 18% Time Frame Price performance last five years 6 Months Recommended on i-click to gain at 10:47 hrs on April 04, 2018 Market Capitalisation ( Cr.) 9465 Face Value ( ) 2 52 Week High / Low 232/118 50/200 day EMA 177/151 3m Avg volume 67 lacs MF Holding(%) 6.25 FII Holding(%) Year

6 EIH Ltd (EIHLIM): Fundamental View EIH (a hotel operator) has majority of its hotels in business destinations. Out of the company s total room inventory of 4897, EIH owns around 45% of rooms, of which, ~95% are at business locations. Cyclical upturn in hotel sector We expect a revival in the economy to drive hotel industry occupancy and realisation. Further, a slowdown in capacity addition coupled with a rise in spending by domestic travellers is expected to further drive revenues over the next three to four years. Robust expansion plans over next three years EIH plans to open at least six new hotels consisting of ~893 rooms in the next three years. The company is almost debt free (debt/equity of 0.1x) and has healthy cash flow generation that would help EIH fund these expansion without creating additional burden on its balance sheet. Reopening of Delhi property bodes well The Oberoi, New Delhi (one of its prime properties) has been closed for renovation from April 1, The hotel opened in January We believe this will result in improved revenue growth in FY18E and FY19E. The hotel generated revenue of crore (contributed 13.7% of total revenues of the company). Valuation & Outlook Re-opening of the Delhi property and opening of six new hotels is expected to drive topline (CAGR of 15% in FY17-19E) and EBITDA growth (CAGR of 29% in FY17-19E). Considering a portfolio of premium properties (majority are upscale luxury hotels with replacement cost of ~ 4-5 crore/room) and robust expansion plans, the stock is trading at attractive valuations of 2.9 crore/room. Stock Data Particulars Market Capitalization Total Debt (FY17) Key metrics Financial Highlights Amount 9145 crore 383 crore Cash and Investments (FY17) 179 crore EV 9348 crore 52 week H/L 232/98 Equity capital Face value 2 FY16 FY17 FY18E FY19E P/E EV / EBITDA P/BV RoNW RoCE Crore FY16 FY17 FY18E FY19E Net Sales 1, , , ,028.2 EBITDA Net Profit EPS (Rs) Source: Bloomberg, ICICI Direct.com Research April 4, 2018 ICICI Securities Ltd. Retail Equity Research 6

7 Follow up summary of Gladiator Stocks Summary Performance - Recommendations till date Total Recommendations 336 Open 3 Closed Recommendations 333 Yield on Positive recommendations 19.0% Positive Recommendations 251 Yield on Negative recommendations -8.0% Closed at cost 8 Strike Rate 77% April 4, 2018 ICICI Securities Ltd. Retail Equity Research 7

8 Stock on the Move open recommendations Date Scrip Name Strategy Recommendation Price Target Stoploss Time Frame 27-Feb-18 Mahindra CIE Automotive Buy Month All the recommendations are in Cash segment Back to Top April 4, 2018 ICICI Securities Ltd. Retail Equity Research 8

9 Momentum Picks open recommendations Date Stock Strategy Recommendation Price Target Stoploss Time Frame 3-Apr-18 KEC International Buy Days 26-Feb-18 Ipca Laboratories Buy Days 13-Mar-18 Godrej Properties Buy Days All the recommendations are in Cash segment Back to Top April 4, 2018 ICICI Securities Ltd. Retail Equity Research 9

10 Price history of last three years of the short term recommendations Indian Hotels EIH Ltd April 4, 2018 ICICI Securities Ltd. Retail Equity Research 10

11 Notes... It is recommended to enter in a staggered manner within the prescribed range provided in the report Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis The recommendations are valid for six months and in case we intend to carry forward the position, it will be communicated through separate mail Trading portfolio allocation It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products Please avoid allocating the entire trading corpus to a single stock or a single product segment Within each product segment it is advisable to allocate equal amount to each recommendation For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation April 4, 2018 ICICI Securities Ltd. Retail Equity Research 11

12 Recommended product wise trading portfolio allocation Product Momentum Picks- Intraday Momentum Picks- Positional Duration 10% 30-50% 2-3 Stocks 1-2% Intraday 25% 8-10% 6-8 Per Month 5-8% 1 Month Stocks on the move 25% 12-15% 6-8 Per Month 10-12% 3 Months Gladiator Stocks 35% 15-20% 20-30% 6 Months Cash 5% Allocations Product wise Max allocation allocation In 1 Stock 100% - Number of Calls Return Objective April 4, 2018 ICICI Securities Ltd. Retail Equity Research 12

13 Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai April 4, 2018 ICICI Securities Ltd. Retail Equity Research 13

14 Disclaimer We /I, Dharmesh Shah, Nitin Kunte, Ninad Tamhanekar, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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